Upstream oil & gas to spend another year in doldrums

Oil&Gas Materials 21 December 2020 12:59 (UTC +04:00)
Upstream oil & gas to spend another year in doldrums

BAKU, Azerbaijan, Dec.21

By Leman Zeynalova – Trend:

Investment levels in the upstream sector will stay flat at about US$300 billion in 2021, Trend reports with reference to Wood Mackenzie.

The company believes that reactions to price signals will be asymmetric; low prices mean rapid cuts, but at higher prices contingency and resilience will outweigh enthusiasm to take advantage of a nadir in service sector costs.

“Projects will increasingly be judged on their environmental, social and corporate governance (ESG) credentials. We expect 20 or so big projects to be sanctioned in 2021, up from just over 10 in 2020, but just half the prevailing pre-pandemic trend. The class of 2020 will not all be low-carbon, low-cost trailblazers. But the direction of travel is one-way in terms of industry stakeholder aspirations,” said Wood Mackenzie.

With the Pfizer-BioNTech Covid-19 vaccine beginning to make its way the UK and US in mid-December, the company expects coronavirus-related shutdowns to start easing in the first quarter of next year. “Our forecast is for world oil demand to increase 6.6 million barrels per day year-on-year in 2021, reversing about two-thirds of the nearly 10 million b/d collapse in 2020.”

“Already, China has seen oil demand strengthen this quarter to levels higher than the same period of 2019. The turnaround in China’s oil demand points to the first sign of what will soon be a reality: brisk global year-on-year demand growth in 2021. That trend is going to tighten the supply and demand balance by the second half of 2021 and support oil prices,” said Wood Mackenzie.

Fitch Solutions says that the oil and gas industry will continue to recover in 2021 but impacts from Covid-19 have accelerated underlying trends in demand and investment.

“Although we expect global oil demand to improve over the year, it will remain below pre-Covid levels, impacting the downstream sector and forcing OPEC to manage supply levels. The shift away from fossil fuel investment as well as the increased focus on decarbonisation will push the oil & gas industry to become more ambitious in its efforts to curb emissions and take a leading role in the energy transition as more companies announce carbon neutrality targets in 2021,” the company’s report reads.

Fitch Solutions forecasts that oil and gas demand will post modest gains in 2021, in particular during H2, as the global rollout of Covid-19 vaccines will see energy consumption rebound in parallel with the global economy.

“We forecast growth of 5 percent y-o-y in 2021, a fuel demand gain of 4.4mn b/d, but well below the decline of 6.8mn b/d we anticipate for 2020. The start of 2021 may see some rough patches, with lockdowns in place in several advanced economies, which were enacted in response to higher rates of infection. We expect 2021 will be year of two halves, with the bulk of demand returning in the second half of the year as vaccines become more widespread. The differing timing of vaccine adoption, with developed markets (DMs) and China seeing the vaccine earlier in 2021 than most emerging markets, will see fuel demand rebound at varying rates by region,” the company said.

The European majors have already laid out their zero-carbon growth aspirations. Wood Mackenzie expects that they will put more meat on the bone in 2021, continuing to build the foundation of a net-zero trajectory by investing in low-carbon technologies.

“The change in US administration, the looming COP26 and shifting stakeholder sentiment will ratchet up the pressure on other IOCs and NOCs to follow their lead. In a sign of how investor pressure on climate change is ramping up, this month a group of 30 fund managers with US$9 trillion under management committed to work towards a goal of having net-zero emissions across their portfolios by 2050. They also pledged to set intermediate goals for 2030 consistent with limiting global warming to 1.5°C. Early next year, regulators in the EU and the UK will start pushing listed companies to adopt the recommendations of the Task Force on Climate-Related Financial Disclosures for talking about their emissions and climate risks. The combined pressure from investors and regulators will mean more companies making commitments on emissions, and more companies with long-term ambitions setting medium-term intermediate goals,” the company said.


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